Blog

Due to a Request from Quebec’s Office de la Langue Francaise to translate the blog, this section has temporarily been removed.

In the interim this article from Financial News (12 January 2017) may be of interest:

Smaller M&A advisory firms are carving out a big niche

By Tim Burke, Financial News
12 Jan. 2017 2:38 p.m. GMT
When Andrew Sibbald set up London-based advisory firm Lexicon Partners in 2000, the “aura of invincibility” around large investment banks often made it feel like “a battle to get into the room” with clients, he recalled.

That isn’t such a problem for independent firms now. There are more of them running the biggest mergers and acquisitions, and they are bringing in big names and big money.

Eight of the 10 largest M&A deals announced globally in 2016 involved at least one independent adviser, according to analysis from Dealogic. A decade ago, only half had an independent firm on board. In 1998, it was none.

Bankers at these firms say they are capitalising on companies’ demand for independent advice when buying or selling a business – advice that, as Lazard’s UK chief executive William Rucker put it, came “free of conflicts”.

“How can you expect a banker sitting at the head of an [investment bank’s] advisory team to be independent and help make a judgement on whether to do or not do a deal when his colleagues behind him literally face losing hundreds of millions of dollars in [financing] fees?” asked Sibbald, who in 2011 sold Lexicon to US-based independent adviser Evercore Partners and now is that firm’s chief executive of European investment banking.

There are other factors encouraging deal-hungry companies to use independent firms for advice. Robert Leitão, Rothschild’s head of global advisory, said independent firms were freer to focus on clients than bigger banks without the distraction of having to negotiate excessive regulation. Moelis’s Mark Aedy, investment banking head for Europe, the Middle East and Africa, and Asia regions, said his firm’s model was an attempt to free advisory services from “bureaucracy, hierarchy and conflicting interests”.

Investment bankers at big firms acknowledge some of these problems. One M&A head at a Wall Street bank said clients grew cynical of firms such as his after the financial crisis, allowing independent firms to win work. Companies were ready to hear advice from a firm that “wasn’t perceived to have other agendas in terms of lending, hedging, making money and using the advisory relationship to push a lot of other products,” he said.

Pascal Ravery saw first-hand how investment banks’ “better people had too many things on their plate”. He spent 30 years in investment banking, mostly at JP Morgan. He called time on that part of his career in 2014 and now advises companies through his Lakeside Capital Advisers firm. Helping to bring back the “trusted adviser” format via the independent route is proving “so much more enjoyable,” said Ravery, who last year advised Swiss agrichemicals company Syngenta on its $47 billion acquisition by China National Chemical Corp.

Migration of talent

It isn’t only the number of big deals led by independent advisers that is notable, but also the growing numbers of firms involved.

In each of the past two years, 14 independent advisers had roles across the 10 largest deals – in 2015 they outnumbered big banks on the top transactions. In 2006, by comparison, there were seven independents working across the top 10 deals, and in 1995 there were just two.

Their numbers have grown as established dealmakers from big banks have set up their own shops.

Centerview Partners, for example, was established in 2006 by bankers including Blair Effron, formerly group vice chairman of UBS, and Robert Pruzan, formerly global head of investment banking at Dresdner Kleinwort Wasserstein.

That same year, former Morgan Stanley investment banking head Joseph Perella and Peter Weinberg, once the chief executive of Goldman Sachs International, opened the doors at Perella Weinberg Partners. A year later, ex-UBS investment bank president Ken Moelis launched his eponymous firm.

“There’s been a migration of talent,” said Paul Taubman, one-time investment banking boss at Morgan Stanley, who set up PJT Partners in 2013 before merging it with the spun-out advisory and placement businesses of Blackstone in 2015. “If you look at the talent that resides outside of the big firms today, versus five or 10 years ago, it’s markedly higher both in terms of the numbers and the people who operate at the top of their game.”

Greenhill’s chief executive, Scott Bok, said the bankers that tended to be suited to life in an independent firm were those who have focused more on the advisory business than on selling financial products, and who are as much focused on their relationships with clients as executing the deals.

Not everyone stays. Luca Ferrari, a former Goldman Sachs partner, joined Greenhill’s London team in 2012 as co-head of European advisory. He left in October, 2015, and the following summer re-emerged at Bank of America Merrill Lynch, where he is now head of M&A for EMEA.

But moves such as Ferrari’s seem the exception rather than the rule. At Perella Weinberg, partner Paulo Pereira – a former Morgan Stanley M&A boss – said he expected seasoned bankers to continue moving from integrated to independent firms, whether they started new firms or joined existing ones.

Recent moves include some of the best-known names in banking. In November, Evercore announced that John S. Weinberg, a 30-year veteran of Goldman Sachs and a former co-head of its investment banking division, had joined as executive chairman.

Better than the biggest

Some bankers at big firms deny feeling pressure from smaller rivals. “[Boutiques] are competition for a while,” said the European M&A head at a US investment bank. “But, typically, they fail to replenish their rainmaker talent. As such, they have a limited life cycle.”

For now, though, the growth of these firms is hard to ignore. Evercore Partners’ rise to ninth place in Dealogic’s M&A revenue ranking in 2016, from 13th a year earlier, came on the back of a 1.2 percentage-point increase in market share – making it the only firm in the top 10 to grow its share of the fee pool by more than 100 basis points.

Firms’ bottom lines are also growing. At Robey Warshaw, partners Simon Robey, Simon Warshaw and Philip Apostolides shared a profit pool of £36.6 million for the 12 months to March 31, 2016, on revenues that had almost doubled year-on-year to £43.3 billion, according to accounts.

Nonetheless, independent advisers are frank about competition between their firms and full-service investment banks.

“For us to succeed, we have to be materially better than the [big investment banks],” said George Boutros, chief executive of San Francisco-based Qatalyst Partners, which last year advised NXP Semiconductors on its $47 billion takeover by Qualcomm, the year’s fifth-largest deal. “We can’t just be as good, because our competitors have established businesses and big franchises.”

Independence helps here, reckoned Boutros, who, before joining Qatalyst in 2010, was chairman of Credit Suisse’s global technology and healthcare groups. “People know we’re going to give them advice that is in their best interest, not advice motivated by other considerations.”

Next generation

For established businesses, succession planning beckons. As one independent founder puts it, “the day will come when I’m a bust or a portrait in the lobby”. It might not be imminent given the relative youth of many firms, but all firms will eventually have to decide what happens when the big-name bankers behind the brand put away their pitch books.

Succession planning was usually risky in a professional-services firm, said Scott Adelson, co-president of advisory firm Houlihan Lokey, particularly if there was an individual whose “persona is the firm”.

He added: “What happens to some of these independent investment banks down the road? There likely will be many different solutions. Some will transition internally, some may be sold to traditional or non-traditional buyers, and some will go public.”

The information contained herein was prepared from sources believed to be reliable at the time of writing. No representation is made as the accuracy or completeness of the contents of any blog post. This blog does not constitute financial advice; nor does it constitute an offering of securities. All rights reserved.

February 9, 2016BLOG TEMPORARILY REMOVED

Ce blogue a été supprimé temporairement.

This blog has been temporarily removed for editing following an official demand from Quebec’s Office de la langue Francaise to produce a French translation.